Shares in NatWest Group climbed around 5% this morning after the banking giant beat expectations for the third quarter and raised its profit guidance for the full year.

The owner of Royal Bank of Scotland reported an operating profit before tax of £1.67 billion for the third quarter, up from £1.3bn last year, as growing confidence in the economy underpinned growth in lending for mortgages and to business, with deposits and investments rising.

Chief executive Paul Thwaite declared the UK economy has “undoubtedly performed better than many expected” at the start of year, with inflation now below target, interest rates beginning to decrease, and unemployment low, sparking customer activity.

However, Mr Thwaite said confidence was not felt by everyone, noting that while spending on debit card was up, there is evidence of some consumers holding back from bigger purchases. And he cautioned that some businesses were waiting for “greater clarity” on issues such as Budget, interest rates and the forthcoming US election before making decisions.

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Mr Thwaite also declined the comment specifically on the Budget, amid speculation Chancellor Rachel Reeves is planning to increase bank taxes and raise employer national insurance contributions. He said the bank was broadly supportive of measures to boost grow infrastructure investment across all the nations and regions of the UK.

The bank, which reported that impairments remained low in the third quarter, raised its income guidance for the full year to around £14.4 billion, up from £14bn, and its ROTE (return on tangible equity) guidance to more than 15%, following its strong performance over the first nine months.

NatWest also flagged the continuing reduction of the UK Government’s stake in the lender, which is now below 16%, down from around 38% in December.

Will Howlett, financials analyst at Quilter Cheviot, said: “NatWest delivered another strong quarter with its latest results being well received again thanks to a big beat versus consensus and upgraded guidance. NatWest has had a strong run this year and as such the attractiveness of its valuation has been lost somewhat given it now trades in line the European sector compared with an ever present discount post Brexit.”

He added: “NatWest does have some real momentum behind it, but how long this can continue as interest rates fall remains to be seen. From a positive perspective, guidance has been raised again with strong income forecasts. However, net interest income makes up over 75% of NatWest’s overall income take, so as rates come down, returns will be harder to come by even if hedges help smooth this effect. Given the valuation it currently sits at, we see more upside at Barclays and Standard Chartered among UK banks.”

Mr Thwaite said: “The strength of NatWest Group’s performance is underpinned by the support we provide to our 19 million customers in every nation and region of the UK. By continuing to deliver against our strategy, we are growing and simplifying our bank whilst managing our capital more efficiently.

“As the UK’s biggest bank for business, and one that serves millions of households, NatWest Group plays a key role in driving economic growth across the UK. Throughout the third quarter of 2024, we have grown our lending, helping customers to buy or remortgage their homes or to start and grow their businesses. With customer activity increasing, defaults remaining low and optimism amongst businesses and consumers, we are well placed to succeed with our customers and for our shareholders in the months and years ahead.”

Shares in the bank were trading at 378.80p, up 4.7%, around 9.30am.